Understanding Weak Economic/Political Institutions in Fragile States Across the East African Community

*This long-read is taken from an edited version of a Ph.D proposal I made to the Centre for European and Comparative Legal Studies, University of Copenhagen on Public Law in Fragile States: The Missing Dimension of Bureaucracy

The overriding objective of this article is to support and add to the on-going work to realise the long term vision of helping national reformers to build effective, legitimate, and resilient state institutions in fragile situations. It is envisaged that this will enrich current debate and understanding of the root causes of weak institutions in selected fragile situations across East Africa and to develop the capacity of the selected states in East Africa to engage productively with their people to enhance social cohesion and promote sustainable development as envisaged in the United Nations Sustainable Development Goals’s 2015.

The African Union is mandated to enhance cooperation among member states, support the strength of institutions across the continent, and spur development. The AU Commission 2063 Agenda for Africa aspires “to become a continent where freedom of people, capital, goods and services will result in significant increases in trade and investments”;“to promote macroeconomic policies that facilitate growth, employment creation, investments and industrialisation”; and “to develop the African private sector through engagement and a conducive climate, fostering pan-African businesses”.

The AU is focussed on a strategic framework striving for the socio-economic transformation of the continent over the phase of 50 years. It aims to build on and seeks to accelerate the implementation of past and existing continental initiatives to attract responsible investments for growth and sustainable investments for development.

Too, often, weak institutions stifle investment in Africa. Strengthening institutions are key to peace and prosperity. The AUC’s core priorities of Peace & Prosperity and Institutional Capacity can do more to build on improvements in institutional capacities through Regional Economic Communities (RECs) and Multilateral Developmet Finance Institutions (MDFI).

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The African Development Bank (AfDB) as the MDFI for the continent is uniquely placed to assist fragile situations in the East African Community (Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan) to function under conditions of weak administrative capability to deliver essential services needed for investment and trade for sustainable economic growth!

The AfDB Ten – Year Strategy 2013-2022 identified fragility as an area needing special focus. In view of this the Strategy on addressing Fragility and Building Resilience in Africa 2014 – 2019 guides’ engagement with fragile situationsⁱ.

A key element of the strategy is the AfDB recognition of fragility as not a category of states but a phenomenon that can appear in many places and forms. The Strategy also emphasizes that countries that move away from fragility often do so, not through one decisive “make or break” moment, but through many transition moments that takes time. The AfDB recognises that the drivers of fragility can be categorized into four dimensions: economic, social, political and environmental, all usually involving exclusion and inequality.

In its understanding of the key drivers of fragility the AfDB placed particular strategic importance to the need to (i) strengthen state capacity and support effective institutions to foster legitimate political and capable legal institutions.

Understanding Fragility in Context

According to the United Nations (UN) Development Programme, no state undergoing “widespread conflict or fragility” has met a single Millennium Development Goals (MDG’s) targetⁱⁱ. The UN Sustainable Development Goals (SDG’s) are about advancing a vision of progress exemplified by goal 16, which aims to “promote just, peaceful and inclusive societies”ⁱⁱⁱ. The particular challenges facing fragile states make them unlikely to achieve implementation.

The concept of fragility has gained prominence in the development discourse with development practitioners coining a plethora of definitions, in most cases to suit specific focus and objectives.

The UK’s Department for International Development (DfID) considered service entitlements, justice and security in its definition of fragile states^iv, whereas The Organisation for Economic Co-operation and Development (OECD) categorised fragile states using a pro-poor approach^v. Canada’s Country Indicators for Foreign Policy Project (CIFP) equally emphasizes that the state needs to exhibit the three fundamental properties of authority, legitimacy, and capacity (ALC) to function properly. The World Bank Group (WBG) has evolved its understanding of the development challenges of fragile states to the now Harmonized list of Fragile Situations (2011-2015)^vi.

However, most analysts agree that fragility is associated with various combinations of systemic dysfunctions leading to government inefficiency and the breakdown of the social contract. Cammack et al [2006] highlighted that fragility is about authority, service entitlements, and legitimacy failures.

Kaplan [2008] considered that “fragile states are only those where [all] these problems have grown to such systematic levels that they threaten stability”.^vii Whereas Cilliers and Sisk concluded that in the African context, poverty, cyclical violence, economic exclusion and weak governance defined fragility, when considering state capacity and performance to deliver security and development^viii. Carment and Samy [2011] considered the levels of inequality and economic exclusion as distinguishing factors defining most fragile states^ix.

The causes of fragility include weak institutional capacity, institutional multiplicity and succession politics that can precipitate fragility due to the uncertainty created. Without understanding the root causes of fragility, it is highly unlikely that any country can become prosperous and stable without first undergoing some form of institutional re-engineering [Kaplan 2008]^x.

Kaplan noted two distinct root causes of fragility (a) a lack of social cohesion; and (b) a lack of a shared, productive set of institutions (formal and informal). These factors affect the capacity of the state to create an effective governance system.

Sisk noted that theories of state formation and state building from the influential writings of Max Weber^xi complemented the understanding of effective governance systems during the formation of European states, most of which emerged from war, or waged war, and can be applied to present day fragile states^xii.

Kaplan noted a special relationship between the state and legitimacy which in dysfunctional situations is absent.^xiii. In the context of states divided along ethnic lines it is even more difficult to generate a sense of social cohesion to ensure effective governance systems needed to promote development.

Whereas successful states utilise local identities, local capacities, and local institutions to promote growth (in dysfunctional states these assets are undermined by the state institutional structures).

Zoum [2013] highlighted that key donor policy intervention in Africa including those of the World Bank and others have not grasped this concept, understandingly focussing on capacity, security and accountability to citizen demands^xiv.

Fragility in East Africa

“Africa’s growth strategy should focus on the 3 I’s, Integration, Institutions and Infrastructure and one of the regions in Africa that is making remarkable progress in all these “I’s” is the East African Community”. Donald Kaberuka, President of the African Development Bank^xv

The East Africa region denotes the geographical area comprising the countries forming the East African Community^xvi. Once again the region has topped a Washington think tank’s annual ranking of national stability^xvii. Many of the countries in the EAC suffer from weak institutional capacities, poor governance, economic and social disruption, and insecurity.

It has been identified as the region in Sub-Saharan Africa most threatened by indigenous and international terrorism. The root causes are numerous and sometimes complex.

Despite this, integration has played a key role in boosting intra – East African trade and increasing the regions access to global markets, as well as being the fastest – growing region on the continent of Africa.

International development presence in the region includes DfID^xviii and USAID^xix projects both aimed at boosting economic growth and regional trade. The WBG has the development objective of establishing the foundation for financial sector integration among EAC Partner States^xx.

Whilst the European Council recently adopted a regional action plan for the Horn of Africa Window^xxi in addition to a previous strategic framework for the European Union to implement action for greater peace, stability, and prosperity for the region^xxii.

Weak Institutions a Challenge to Investment and Trade

Investors’ money is the fuel that drives the wealth-creation process that is the prerequisite for any development. Seth D. Kaplan^xxiii

The roots of many economic and political institutions in East Africa, as is the case for much of Sub-Sahara Africa, can be traced back to the colonial period. Where extractive institutions (economic and political) were designed in order to enrich the elite and perpetuate their power at the expense of the vast majority of people in society.

At independence from the colonial governments many of these institutions remained in place albeit with new leadership. Acemoğlu and Robinson [2012] are radical in arguing that nations fail because these extractive institutions [supported by extractive political institutions] keep poor countries poor and prevent them from embarking on a path to economic growth, by cementing the power of those who benefit from the extraction.

In fragile states the extractive economic institutions do not create the incentives needed for people to save, invest, and innovate.^xxiv. Thus weak institutions hamper investment growth for all.

The EAC region is becoming an oil and gas hotspot and expected to attract “tens of billions of dollars of investment over the next decade”^xxv. Policy advocacy to encourage more inclusive institutions is needed.

Research shows that fragile states over relying on overwhelmingly dominant export sector’s will lag behind in economic development due to failure to build strong institutions that “tax, monitor, regulate, or promote other sectors” (Shafer, cited in Ross 1999)^xxvi.

Diamond and Mosbacher [2013] provided a radical solution, allowing for a large share of new oil, gas and minerals revenues to be a direct benefit to the people as taxable income. Which if properly managed over long periods of time could contribute significantly to alleviating deep rooted poverty^xxvii.

Ross [2006]) emphasised that with no accountability systems in place these regions will be more vulnerable to resource related conflict resulting in resource looting, war profiteering and the concentration of wealth in specific regions of the state^xxviii.

Private sector led development offers the greatest prospect to attracting foreign and private investment to the countries in the EAC; this is because investment is already a more significant source of capital than official assistance^xxix.

In recent years, the majority of investment in the African private sector flowed towards the rapidly expanding telecommunications and the extractive industry sectors. For example, Leo, Ramachandran and Thuotte [2012] indicated that private investors ‘appetite’ for other sectors will continue to grow and that private sector expansion could provide a valuable boost to capital-and capacity-starved fragile states^xxx.

Recent experience of investment promotion in fragile situations recognises that well channelled foreign direct investments (FDI) can create new sources of wealth ; generate jobs ; provide access to capital and technology ; enhance productivity and support the diversification of national economies^xxxi.

The East African Community: The Dilemma of Regionalism

“Aspirations for political union are not a necessary precondition for building regional institutions that foster economic integration”. C. Randall Henning 2004^xxxii

A recent AfDB report states that the“EAC has made the most linear progress toward economic union and the highest ambition of the eight RECs” in Africa (AfDB, 2014)^xxxiii.

Despite not having a strategy to support its fragile members, the EAC is best placed to support member states institutions emerging from conflict or facing endemic dysfunction due to the shared set of historical experiences and ties. It could gradually transform the institutional fragile environments and economic prospects of its member-states faced with identity divisions, weak administrative capacities, and limited human resources. And with robust structures would, in fact, do much to improve member state structures both through the standards set and enforced throughout the community.

Henning [2004] pointed out that successful international institutions don’t enforce hard rules, but instead provide information, monitor agreements and facilitate bargaining among governments^xxxiv.

In its current form the EAC is not highly advanced or very influential to support and transform institutional development amongst its fragile partner states, due partly to a number of factors that include low institutional capacity ; limited authority to monitor implementation challenges and a greater dependency on donor support [Mathieson 2016]^xxxv.

An illustration is the 2013/2014 budget of the EAC where traditional donors contributed over 65%, with partner states contributing just 28%. This reliance on donor funding creates significant incentives for the EAC to develop policies that appeal to donors in order to continue accessing funds, which contrasts to Chinese financiers which are less interested in policies.

The New Self-Finance Mechanism of The African Union

In an historic decision adopted by Heads of State and Government (HOSG) in a Retreat Financing of the Union during the 27th Africa Summit held in Kigali, Rwanda in July 2016.

President of Rwanda, Paul Kagame was assigned by his counterparts to come up with reform proposals for the AU as part of transforming it into a self-reliant continental body by 2018 formal review that proposes recommendations.

The Decision directed all African Union Member States to implement a 0.2% levy on legible imports – funds that would go directly to finance the AU. The ambitious pledge was for member countries to fund 100 % of the AU Commission operating costs, i.e. 75 % of the AU’s programmes, and 25 % of African peace operations.

In the last 50 years, the AU has relied on extensively on ‘external partners’ to fund much of its operations, for example, in 2015 – 2016 alone, external partners funded 59 % and 63 % of the AU budget respectively.

President Kagame during the 27th Africa Summit in Kigali asserted that this situation was unacceptable.

The message being diplomatically conveyed was that external partners have had too much leverage on decision-making at the AU, to the detriment of African independent thought and action.

A successful implementation of this mechanism plan is not only likely to upgrade the AU’s status as a credible organisation removing the unglamourous tag of a weak and shambolic institution but will elevate its relationship with the UN and other internatinal organisations. A more independent, organised AU will be well placed to guide and support RECs across the continent including the EAC in its quest to support fragile situations across the region.

Most recently at the Global Economy and Development program at the Brookings Institute, President Kagame was asked on financing of the African Union for his thoughts as to why the 0.2% levy has not been well received.

Kagame’s response reiterated his speech in Kigali that “As evidence mounts that this reform [the AU reform] is real and reversible, there have been expressions of polite surprise, bordering on discomfort, from external parties. Accomodating an articulate and effective African Union in the world order challenges entrenched interests and assumptions. Even those who wish us well may have reason to discourage a more independent and oganised Africa. We should be prepared to react accordingly”.

Kagame was catergorical in his response to suggest that external partners have not been forthcoming to support this reform agenda whilst at the same time  not offering alternative solutions for reform. He agreed that some countries within Africa and outside are afraid of what an efficient and effective AU might mean for the future of Africa.

The question that remains is whether President Kagame and the other Heads of the AU member states have reconciled the principles and policies of inherited extractive institutions. That are not only the root causes of fragility but no longer fit for purpose, with a legacy of division, poverty and a weak and shambllic Africa.

Should that be the case then the African Union would be encouraged to embrace continental unity, be resolute and firm with the reform agenda and not lose sight of the goal of a proper African unity under inclusive institutions.

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